Professional Accounting Education
Provided by Academy of Professional Accounting (APA)
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台
ACCA P2 Corporate reporting(INT.)
Chapter 5 IAS19 Employee benefit
ACCA Lecturer: Roy Wang
ACCA Research Institute
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 2
07.Dec Macaljoy
Macaljoy, a public limited company, is a leading support services
company which focuses on the building industry.
The company would like advice on how to treat certain items under
IAS 19 Employee benefits and IAS 37 Provisios, contingent liabilities
and contingent assets. The company operates the Macaljoy Pension
Plan B which commenced on 1 November 20X6 and the Macaljoy
Pension Plan A, which was closed to new entrants from 31 October
20X6, but which was open to future service accrual for the
employees already in the scheme. The assets of the schemes are
held separately from those of the company in funds under the control
of trustees. The following information relates to the two schemes.
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 3
07.Dec Macaljoy
Macaljoy Pension Plan A
The terms of the plan are as follows.
(i) Employees contribute 6% of their salaries to the plan.
(ii) Macaljoy contributes, currently, the same amount to the plan for
the benefit of the employees.
(iii) On retirement, employees are guaranteed a pension which is
based upon the number of years service with
the company and their final salary.
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 4
07.Dec Macaljoy
Macaljoy Pension Plan B
Under the terms of the plan, Macaljoy does not guarantee any
return on the contributions paid into the fund. The
company's legal and constructive obligation is limited to the
amount that is contributed to the fund. The following
details relate to this scheme:
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 5
07.Dec Macaljoy
Draft a report suitable for presentation to the directors of Macaljoy which:
(a) (i) Discusses the nature of and differences between a defined
contribution plan and a defined benefit plan with specific reference to the
company's two schemes. (7 marks)
(ii) Shows the accounting treatment for the two Macaljoy pension
plans for the year ended 31 October 20X7 under IAS 19 Employee
benefits (revised 2011). (7 marks)
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 6
07.Dec Macaljoy
Answer
a)
Defined contribution plan:With defined contribution plans, the
employer (and possibly, as here, current employees too)①
pay regular contributions into the plan of a given or ‘defined’
amount each year. The contributions are invested, and the size
of the post-employment benefits② paid to former employees
depends on how well or how badly the plan's investments
perform. If the investments perform well, the plan will be able to
afford higher benefits than if the investments performed less well.
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 7
07.Dec Macaljoy
Answer
With defined benefit plans, the size of the post-employment
benefits is ①determined in advance, ie the benefits are
‘defined’. The employer (and possibly, as here, current
employees too) pay contributions into the plan, and the
contributions are invested. The size of the contributions is② set
at an amount that is expected to earn enough investment returns
to meet the obligation to pay the post-employment benefits. If,
however, it becomes apparent that the assets in the fund are
insufficient, the③ employer will be required to make additional
contributions into the plan to make up the expected shortfall. On
the other hand, if the fund‘s assets appear to be④ larger than
they need to be, and in excess of what is required to pay the
post-employment benefits, the employer may be allowed to take
a 'contribution holiday' (ie stop paying in contributions for a
while).
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 8
07.Dec Macaljoy
Difference
1.Risk
The risks of defined contribution plan are retained to
employees.
The risks of defined benefit plan are afforded by employers.
2.Amounts
The contribution of defined contribution scheme is fixed.
The contribution of defined benefit scheme is determined by
the investment,if investment bad,pay more contribution to the
pool.
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 9
07.Dec Macaljoy
Reference
A: The A scheme is a defined benefit scheme. Macaljoy, the
employer, guarantees a pension based on the service lives of
the employees in the scheme. The company's liability is not
limited to the amount of the contributions. This means that the
employer bears the investment risk: if the return on the
investment is not sufficient to meet the liabilities, the company will
need to make good the difference.
B: The B scheme is a defined contribution plan. The
employer's liability is limited to the contributionspaid.
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 10
07.Dec Macaljoy
B）
Pension B
No assets or liabilities will be recognised for this defined
contribution scheme.
$10 goes into operating costs
DR expense 10
CR CASH 10
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 11
07.Dec Macaljoy
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 12
07.Dec Macaljoy
Professional Accounting Education
Provided by Academy of Professional Accounting (APA) ACCA Research Institute
